Introduction
The patent system rewards inventors by granting them exclusive rights, including allowing them to commercially exploit their inventions for the full patent term, in exchange for disclosing their inventions to the public. In Part I of this series, we explained that this is referred to as the "patent bargain," and that allowing a patentee to commercially exploit the invention for a longer period of time though pre-filing sales would thwart this agreed-upon exchange.
In Part II of this series, we discuss how pre-filing sales of suppliers to the patentee or third-party sales can also run afoul of the on-sale bar. The analytical framework for the on-sale bar articulated in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998) and decisions such as Crown Packaging Tech., Inc. v. Belvac Prodn. Mach., Inc., 122 F.4d 919 (Fed. Cir. 2024) applies equally in these other scenarios.
Commercial exploitation of the invention
Sales by suppliers
In Medicines Co. v. Hospira, Inc., the U.S. Court of Appeals for the Federal Circuit sitting en banc considered, among other things, whether it should overrule or revise the principle that there is no "supplier exception" to the on-sale bar.827 F.3d 1363, 1370 (Fed. Cir. 2016) (en banc).
In this case, specialty pharmaceutical company MedCo had entered into a supply agreement with manufacturer Ben Venue to produce batches of the compound bivalirudin. Id. at 1367. Nearly two years after executing this agreement, MedCo filed for a patent on a compounding process of producing bivalirudin. An initial U.S. Court of Appeals for the Federal Circuit panel overturned the district court's determination that the agreement between MedCo was not a commercial offer for sale. Id. at 1369-70.
MedCo then petitioned for rehearing en banc, arguing that "the on sale bar is not triggered by an inventor's retention of a third party to develop or manufacture the claimed invention confidentially and under the inventor's direction and control." Id. at 1370.
The Federal Circuit's analysis focused on the commercial character of the agreement between MedCo and Ben Venue. First, the court analyzed the agreement, which stated that Ben Venue was to "manufacture" the bivalirudin product. Id. at 1375. Second, the court noted that the price MedCo paid Ben Venue was only about 1% of the ultimate value of the product. Id.
And finally, the court emphasized that there had been no transfer of title, since Ben Venue "was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo." Id. Consequently, despite the marginal commercial benefit to MedCo, the court determined that as a whole, the manufacturing agreement was "preparation" for commercial activity and was not in itself a commercial offer triggering the on-sale bar. Id. at 1367.
Although ultimately finding that there was not sufficient evidence of a "commercial" offer for sale, the court cautioned against overreading its holding. The court explained that the on-sale bar decision should not rest on "formalities" and instead should focus on "preventing inventors from filing for patents a year or more after the invention has been commercially marketed, whether marketed by the inventor himself or a third party." Id. at 1376-77. In other words, "[t]he focus must be on the commercial character of the transaction, not solely on the identity of the participants." Id. at 1380.
The court's holding in Medicines Co. highlights the importance of commercial exploitation in an on-sale bar analysis. Because the court had characterized the manufacturing agreement as a way to "stockpile" MedCo's invention, unreleased to the public, the court did not feel the inventor (MedCo) was unduly attempting to extend its patent term.
Consistent with this reading of the case, in the related decision of Medicines Co. v. Hospira, Inc. (Medicines II), the court determined that MedCo's agreement with a distributor was a commercial offer for sale. 881 F.3d 1347, 1349-50, 1353-54 (Fed. Cir. 2018). That is, actions by MedCo evidencing an attempt to sell and distribute a product to the public were sufficiently commercial to trigger the on-sale bar, because it would allow the patentee to exploit the invention prior to the patent term.
Sales by third parties
The on-sale bar under Pfaff has also been applied to sales transactions involving third parties that may or may not implicate the named inventors. For instance, in Abbott Labs. v. Geneva Pharms., Inc., Abbott asserted a patent covering an anhydrous, crystalline form (called "Form IV") of terazosin hydrochloride. 182 F.3d 1315, 1316-17 (Fed. Cir. 1999).
More than a year before the critical date, a third party (Byron Chemical Company) had sold several lots of terazosin hydrochloride to various U.S. customers. Id. at 1317. It was later determined that this material included crystalline Form IV of terazosin hydrochloride. Id.
The defendants in the litigation successfully moved for summary judgment based on the on-sale bar, and Abbott appealed. Id. at 1316. Abbott argued on appeal that for an "invention" to have been on sale, the parties to the transaction must conceive, or know precisely, the subject matter that was on sale. Id. at 1318.
The Federal Circuit rejected Abbott's argument as inconsistent with Pfaff: "Even though the parties did not know it at the time, it is undisputed that Form IV was the subject of a least three commercial sales in the United States before the critical date." Id. at 1318.
The court also rejected Abbott's argument that for the on-sale bar to apply, there must have been a conception: "We disagree that proof of conception was required. The fact that the claimed material was sold under circumstances in which no question existed that it was useful means that it was reduced to practice." Id. at 1318.
Interestingly, when read in light of the Federal Circuit's later holdings in Crown Packaging and Medicines Co., Abbott suggests that the intent of the patentee is not dispositive in determining whether there was commercial exploitation of an invention for longer than the patent term. Indeed, the patentee (Abbott) was not involved at all in the pre-critical date sales, and there was no evidence of anyone appreciating that the claimed crystalline form had been embodied in those sales. Id. at 1316-18. Accordingly, it can hardly be said Abbott was intending to extend its patent term.
Instead, the commercial exploitation analysis is aimed at limiting the time period of exclusivity of the invention itself. Regardless of the parties involved or their subjective intent regarding an invention, the ultimate question for courts to consider is whether the invention was commercially exploited before the required time for patent filing. See Medicines Co., 827 F.3d at 1376-77 (noting the on-sale bar "prevent[s] inventors from filing for patents a year or more after the invention has been commercially marketed").
In many ways, this understanding of the on-sale bar is similar to the purpose of the public use bar, a separate but related doctrine. Under these doctrines, the overriding issue is whether the "patent bargain" would be violated through exclusive commercial exploitation of an invention that was already available in some way to the public. For the on-sale bar specifically, a "commercial" offer may thus serve as evidence that an invention was accessible to the public prior to patent filing.
Conclusion
When considering whether to raise an on-sale bar challenge, defendants should place particular emphasis on demonstrating the commercial character of a transaction. We explained in Part I of the series and reiterate here that it is still necessary to prove the elements of the multi-factor analysis laid out in Crown Packaging and Pfaff, and defendants should still understand that this is not a rigid analysis. Instead, evidence indicating that an invention was previously commercially exploited, including by a supplier or a third party, can be used to demonstrate that patent exclusivity would be at odds with the quid-pro-quo of the patent bargain.
Originally Published by Reuters
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
